updated 10/25/2006 5:57:56 PM ET 2006-10-25T21:57:56

Automaker DaimlerChrysler AG posted a 37 percent drop in third-quarter net profit Wednesday amid a slowdown in sales at its American arm, Chrysler Group, but still beat analysts' expectations.

The German-American company earned $686 million in the July-September period, compared with a profit of $855 million a year earlier. Analysts polled by Dow Jones Newswires had expected a loss of $58.9 million.

Sales fell 8 percent to $44.6 billion for the quarter.

Chrysler, which has been hampered by declining sales along with its other American rivals, posted an operating loss of $1.5 billion in the quarter.

Its sales fell 26 percent to $12 billion.

"The operating loss was primarily the result of a decrease in worldwide factory unit sales, an unfavorable shift in product and market mix, and negative net pricing," DaimlerChrysler said in a statement, adding that the U.S. market was a difficult environment.

Last month, DaimlerChrysler lowered its 2006 operating profit forecast to around $6.3 billion from its previous forecast of $7.5 billion, citing problems at Chrysler.

The company warned then that Chrysler was likely to post a $1.5 billion operating loss for the third quarter, but return to profit in the fourth quarter.

"We are in no way satisfied with our third-quarter results" Chrysler Group President and Chief Executive Tom LaSorda said in a statement. "We have taken dramatic steps to reduce production and shipments to address the inventory situation in the U.S. and we continue to work to find new ways to eliminate waste, lower our costs and improve quality."

Rival General Motors Corp. posted a $115 million loss earlier Wednesday, smaller than the US $1.7 billion loss it had a year earlier, and said its turnaround plan was beginning to reap benefits. Ford Motor Co. reported a $5.8 billion loss earlier this week on slumping North American sales and massive restructuring costs.

Daimler's Mercedes Car Group saw its operating profit more than double to $1.3 billion because of demand for newly launched versions of the S-Class and M-, R- and GL-class models.

Overall, DaimlerChrysler's operating profit fell to $1.13 billion, but beat analysts' forecast of $688.5 million.

Looking ahead, the company said it expected a slight decrease in global demand for automobiles in the fourth quarter, but said its overall growth for the year should be around 3 percent, down from the 4 percent it saw last year.

Because of lighter demand in Japan and the U.S., DaimlerChrysler said it expected its total vehicle sales for 2006 to be less than the 4.8 million it sold in 2005.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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